The Navigator Co SA (POELF) Q2 2024 Earnings Call Highlights: Strong Turnover Growth Amid ...

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  • Total Turnover: EUR 1,066 million, up 9% year-on-year.

  • EBITDA: EUR 299 million, with an EBITDA margin of 28%.

  • Net Profit: EUR 159 million, up 16% year-on-year.

  • Net Debt: EUR 665 million, with a net debt-to-EBITDA ratio of 1.2.

  • CapEx: EUR 93 million, with 44% classified as sustainability and ESG investments.

  • Paper Sales Volume: Down 10% in Q1, up 23% in Q2 2023.

  • Pulp Sales Volume: Down 35% quarter-over-quarter and 43% on Q2 2023.

  • Tissue Sales Volume: 56,000 tonnes, up 48% quarter-on-quarter and 50% in Q2 2023.

  • Debt Maturity Profile: 93% of total debt issued on a fixed rate basis.

  • Liquidity: Close to EUR 530 million in unused long-term credit lines and cash.

Release Date: July 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • The Navigator Co SA (POELF) reported a 9% year-on-year increase in total turnover, reaching EUR1,066 million for the first half of 2024.

  • EBITDA rose by 18% year-on-year to EUR299 million, with a strong EBITDA margin of 28%.

  • The company successfully completed the acquisition of Accrol, enhancing its position in the UK tissue market.

  • Navigator achieved a significant reduction in cash costs across all segments, ranging from 6% to 14%.

  • The company was ranked as the number one in the world for ESG risk by Sustainalytics among 85 global paper and forest companies, highlighting its strong sustainability practices.

Negative Points

  • Net debt increased to EUR665 million, impacted by the acquisition of Accrol, dividend distribution, and higher CapEx.

  • Pulp sales volumes were down 35% quarter-over-quarter and 43% compared to Q2 2023.

  • The company anticipates a seasonal slowdown in demand and increased pulp supply in Q3 2024, which could negatively impact prices.

  • Fixed costs increased due to the inclusion of new tissue units, employee profit sharing, and nonrecurring costs related to the Accrol acquisition.

  • The geopolitical tensions and market volatility present challenges for maintaining cost reductions and price stability.

Q & A Highlights

Q: Can you provide guidance on volumes for the pulp business in the second half of the year? A: The pulp business is challenging to predict quarter-on-quarter due to market dynamics. We observed strong demand in the first half, particularly in Europe and Asia. However, demand is expected to slow in the third quarter, with a potential rebound in the fourth quarter. Overall, we anticipate a lower growth pace in the second half compared to the first half. (Antonio Jose Pereira Redondo, CEO)

Q: What were the factors behind the strong gross margins in the second quarter, and what can we expect for the second half? A: The improved EBITDA in Q2 was largely due to increased prices across all businesses and reduced variable and fixed costs. Other positive factors included CO2 license sales, integration of Tissue UK, and better energy division performance. We expect margins to stabilize but not necessarily maintain the Q2 level. (Jose Fernando Morais Carreira de Araujo, Executive Board Member)

Q: How did Navigator manage to increase paper prices by 8% when market indices showed less movement? A: The 8% increase reflects our overall sales strategy, which includes a diverse product mix and geographic reach. We operate in over 130 countries and focus on premium products and branded sales, allowing us to achieve better price increases than market indices suggest. (Antonio Jose Pereira Redondo, CEO)

Q: Can you provide details on the operating leases and costs for Accrol? A: Accrol is a converter with typically lower margins than integrated producers. We are focusing on improving margins and aligning them with our business model. Specific financial details are not disclosed at this time. (Nuno de Araujo Dos Santos)

Q: What are the expectations for cost levels in the remainder of the year? A: While it's challenging to forecast costs due to market volatility, we aim to maintain current cost levels through efficient negotiations and consumption improvements. However, further cost reductions will be difficult under current conditions. (Antonio Jose Pereira Redondo, CEO)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.